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November 13, 2020NIO – Citron Pulls the Plug on NIO – 2 Years After OurControversial RecommendationPrice Target 25Two years ago, NIO was trading at just 7 when Citron recommended buying thestock as the company and its charismatic leader William Li intrigued us. After arocky road of trading, NIO has found itself in unchartered territory that can neverbe justified by its current standing in the China EV market or its arch-nio-is-tesla-deja-vuThe recent mania of investors flocking to electric car makers in China shows nodeeper understanding of a market that is marked by price cuts. What makes NIOstock most vulnerable at these levels are 2 main points.1 – Tesla Model Y China PricingWorse, anyone who is buying the stock has obviously not been paying attentionto Tesla and the pricing of the Model Y in China. The brand cache of Tesla and itspricing has become a big problem for NIO’s ES6 hatchback model. Copyright 2020 Citron Research www.citronresearch.com All Inquiries – info@citronresearch.com
November 13, 2020Consider this, last week DB was guessing at what levels Model Y Tesla pricingwould hurt NIO.“We continue to see some risk that Tesla could materially cut the price of itslocally made (MIC) Model Y from 488k RMB ( 73k) to something in the mid- tohigh-300k range ( 56-58k). This could potentially hurt near-term sentiment andslow NIO’s order book momentum considering it would be a direct competitor toNIO’s EC6 and ES6.”Well now local Chinese analysts are predicting that Tesla’s Model Y will be pricedsubstantially below the key price point that would be a threat to NIO according toDB."Recent estimates from securities firm Tianfeng Securities are pointing atsomething quite remarkable for Tesla’s ongoing ramp in China. As noted by thefirm in a recently-released research report, Tesla’s strategy of passing its costsavings to customers could result in the Made-in-China Model Y starting at a veryreasonable price of CN 275,000 (about hina-price-output-report/This would validate the obvious statement made by Bloomberg:“Another wave of price cuts for premium electric vehicles in China may be on thehorizon, stirring up what could be an intense rivalry,” Bloomberg Intelligenceanalysts led by Steve Man said in a Nov. 11 report.To put things into perspective, let’s look at valuation multiples. Copyright 2020 Citron Research www.citronresearch.com All Inquiries – info@citronresearch.com
November 13, 2020NIO has acted as a great trading proxy for Tesla given the valuations havehistorically been highly correlated. However, there is now a massive disconnectwith NIO trading at the largest premium to TSLA in history at double thevaluation. On NTM EV/Sales, NIO is trading at 17-18x vs. TSLA at 9x.Moreover, when Tesla was delivering a quarterly run-rate of 15K vehicles similarto NIO today, TSLA had 45% share of the US EV market while NIO faces significantcompetition today and has 3% share of the Chinese NEV market. Last month,TSLA sold more than double the number of vehicles in China that NIO sold.The made in China Tesla Model Y is real and the pricing is sla-model-y-made-in-china-on-the-horizon/2 – Share structureWhile we commend Baillie Gifford (love those people) and early investors, rightnow we are looking at a share structure and an investor base that is moreinterested in spinning a casino wheel. While the float is open after years oftrading, the short interest is at almost a 2-year low.ConclusionAnyone buying NIO stock now is not buying a company or its prospects, ratheryou are buying 3 letters that move on a screen. The China electric phenomenon isa real movement BUT there are better ways to play it. Consider this – Buffett Copyright 2020 Citron Research www.citronresearch.com All Inquiries – info@citronresearch.com
November 13, 2020backed BYD did 22 bil in sales and trades at 3x sales even after being up 400%this year and at these levels NIO trades at more than 17X sales.Obviously, we will not even discuss NIO profitability. It is time for investors torotate out of NIO, enjoy your profits and look for the next disruptive technology.Cautious Investing to AllThese reports have been prepared by either Citron Research (“Citron Research”) or Citron Capital, LLC (“CitronCapital”). Citron Research and Citron Capital are referred to collectively as “Citron” and each individually as a“Citron Entity.” Each report specifies the publisher and owner of that report. All reports are for informationalpurposes only and presented “as is” with no warranty of any kind, express or implied. Under no circumstancesshould any of these reports or any information herein be construed as investment advice, or as an offer to sell orthe solicitation of an offer to buy any securities or other financial instruments.Citron Research produces research reports on publicly traded securities, and Citron Capital is an exempt reportingadviser filed with the California Department of Business Oversight. The reports are the property of the applicableCitron Entity that published that report. The opinions, information and reports set forth herein are solelyattributable to the applicable Citron Entity and are not attributable to any Citron Related Person (defined below)(other than the Citron Entity that published the report).By downloading, accessing, or viewing any research report, you agree to the following Terms of Use. You agree thatuse of the research presented in any report is at your own risk. You (or any person you are acting as agent for)agree to hold harmless Citron Research, Citron Capital and each of their affiliates and related parties, including, butnot limited to any principals, officers, directors, employees, members, clients, investors, consultants and agents(collectively, the “Citron Related Persons”) for any direct or indirect losses (including trading losses) attributable toany information in a research report. You further agree to do your own research and due diligence before makingany investment decision with respect to securities of the issuers covered herein (each, a “Covered Issuer”) or anyother financial instruments that reference the Covered Issuer or any securities issued by the Covered Issuer. Yourepresent that you have sufficient investment sophistication to critically assess the information, analysis andopinion presented in any Citron report. You further agree that you will not communicate the contents of reportsand other materials made available by Citron to any other person unless that person has agreed to be bound bythese Terms of Use. If you access, download or receive the contents of Citron reports or other materials on yourown behalf, you agree to and shall be bound by these Terms of Use. If you access, download or receive the contentsof Citron reports or other materials as an agent for any other person, you are binding your principal to these sameTerms of Use.As of the publication date of a Citron report, Citron Related Persons (possibly along with or through its members,partners, affiliates, employees, and/or consultants), Citron Related Persons clients and/or investors and/or theirclients and/or investors have a position (long or short) in one or more of the securities of a Covered Issuer (and/oroptions, swaps, and other derivatives related to one or more of these securities), and therefore may realizesignificant gains in the event that the prices of a Covered Issuer’s securities decline or appreciate. Citron Research,Citron Capital and/or the Citron Related Persons may continue to transact in Covered Issuers’ securities for anindefinite period after an initial report on a Covered Issuer, and such position(s) may be long, short, or neutral atany time hereafter regardless of their initial position(s) and views as stated in the Citron research. Neither CitronResearch nor Citron Capital will update any report or information to reflect changes in positions that may be heldby a Citron Related Person.This is not an offer to sell or a solicitation of an offer to buy any security. Neither Citron Research nor any CitronRelated Person (including Citron Capital) are offering, selling or buying any security to or from any person throughany Citron research reports. Citron Research is affiliated with Citron Capital. Citron Capital is an exempt reporting Copyright 2020 Citron Research www.citronresearch.com All Inquiries – info@citronresearch.com
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with NIO trading at the largest premium to TSLA in history at double the valuation. On NTM EV/Sales, NIO is trading at 17-18x vs. TSLA at 9x. Moreover, when Tesla was delivering a quarterly run -rate of 15K vehicles similar to NIO today, TSLA had 45% share of the US EV market while NIO faces significant
